Good news: New lending rate structure from today renders your loan rates cheaper

New Delhi - A host of banks, including SBI, HDFC Bank, PNB, Canara Bank and BoB, on Thursday announced lending rates based on marginal cost of funds, a new methodology that will take effect from Friday. The new interest rates vary from 8.95 percent for overnight to 9.35 percent for three years, SBI said in a document posted on its website on Thursday. The base rate or the minimum lending rate of the bank is 9.3 percent. [caption id=“attachment_2705374” align=“alignleft” width=“380”]  SBI’s rates vary from 8.95% to 9.35%. Reuters[/caption]Both HDFC Bank and BoB matched SBI’s lending rate of 9.20 percent for one year and 9.3 percent for a two-year loan. The rate of interest will be 9.35 percent for a loan of three years duration. BoB fixed interest rate of 9.65 percent for 5-year loan. The bank has also decided to levy a strategic premium of 0.35 percent over and above the marginal cost of funds based lending rate (MCLR) as above, BoB said in a statement. PNB has pegged interest rate of 9.40 percent for one year, 9.55 percent for 3 years and 9.70 percent for 5 years. Subsidiaries of SBI, SBBJ and State Bank of Travancore have also announced lending rates. As per SBBJ, rate for 3 months loans will be 9.5 percent, 6 months 9.6 percent and 9.7 percent for one year. The Reserve Bank of India had asked banks to price fixed rate loans of up to three years based on their marginal cost of fund from April 1. All banks will follow Marginal Cost of Funds based Lending Rate (MCLR) system, a new uniform methodology which will ensure fair interest rates to borrowers as well as to banks from Friday. Currently, most banks decide lending rates based on average cost of funds. According to India Ratings and Research (Ind-Ra) the implementation of Marginal Cost of Funds-based lending rate (MCLR) has the potential to channelise the recent surge of volumes in the commercial paper market towards bank credit. Ind-Ra expects the shortest tenor MCLR for bigger banks to be around 90-100 basis points lower than the base rate, while making it comparable to commercial paper rates with similar tenor. On the longer end (one-year rate) considering the 70-75 basis points of tenor premium evident in the market, the difference from the base rate can be around 25-30 basis points. The MCLR is expected to address the RBIs primary objective, of expediting monetary policy transmission along with augmenting uniformity and transparency in the calculation methodology of lending rates, it said. PTI